The Euro And The Economic Landscape-Two Sober Assessments

Here are a couple of thought provoking articles from the Telegraph.co.uk, just in case you start burning out on football.

The first is by the always interesting Ambrose Evans-Pritchard and it talks about the first ten years of the Euro. Assumed to be doomed to failure by many, the Euro has survived and prospered and even seems so far to have benefited by the recent upheavals in the world’s economy. In fact, many suggest that the current problems may force a number of nations who are members of the European Union but still maintain their own currencies to abandon them and migrate to the Euro. Even the venerable British Pound may succumb.

Pritchard isn’t, however, acting as a cheerleader and points out that ten years is a perilously short time to use to proclaim the Euro a resounding success. In fact, he notes that the current crisis might yet expose a fatal weakness and topple the currency. I agree. Europe has yet to tackle directly the slide in its member countries economies. Given disparate degrees of recession throughout the region, it remains to be seen if they can put national interests and prejudices aside and sacrifice for the good of the whole. That may yet be what tests the Euro.

The second article b y Martin Vander Weyer is a downbeat and differing assessment of 2008 and what may lie ahead. His contention is that the year past was one of madness and as he puts it, “… may have been a picnic in the park by comparison with 2009. I particularly liked his description of what transpired and the reactions that occcurred as things fell apart. 

So rather than describing 2008 as the year of financial Armageddon, I would prefer to call it the year of madness. It began with a phase in which traders, hedge-fund players and their ilk seemed to have gone quite mad, attacking bank shares and currencies and driving oil and food commodity prices to absurd highs – causing hardship in many poorer countries as they did so – in pursuit of a last flourish of profit before their world fell apart. The investment banking world had already taken leave of its senses, wheeling and dealing vast volumes of subprime debt and its derivatives in a frenzied game of pass-the-toxic-parcel. Governments were deluded by the dazzle of the bankers; consumers were deluded by the mirage of easy money; investors were ready to be gulled by alchemists like Mr Madoff. Collectively, did we but know it, we were of unsound mind, unfit to manage our own financial affairs.

And when the system could no longer hold, the madness mutated into William Blake-style visions of the last judgment. The foundations of the age of affluence – ­the only age most of us know – perfectly symbolised by the ATM that pumps cash into our hands at the touch of a button, were about to crumble. Circumstances changed so fast that no prediction counted for anything. Conditions were unprecedented, which meant that economic theories had little to offer: most perversely, it was declared that the last-ditch remedy for a crisis caused by over-borrowing and over-consumption was for governments to borrow more and make money cheaper, so that consumers would spend more.

The last sentence captures the essence of the ill conceived responses to the problem. The consumer as a driver of economies had gone far beyond his means and, even absent the crises we have incurred, would have collapsed under the weight of the debt which had been assumed. Like it or not we have turned a corner that will take us to an economy that has to look elsewhere for growth. Whether that means we experience less growth or other drivers emerge is still to be determined.

Attempting to turn back the clock won’t work.

more: telegraph euro here, telegraph 2008 here

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